Investing in Electricity: reducing costs and increasing income for local authorities

In a recent blog for Clean Energy News, Stephen Cirell comments on the new report published by APSE Energy on how to be smarter with electricty and close up the circle of generartion, distribution and supply for the benefit of the community.

APSE Energy published a new report on electricity and its potential importance to local government last week, entitled Investing in Electricity: Reducing Costs and Increasing Income for Local Authorities.

This report recognises that local authorities are now developing a more sophisticated understanding of the electricity system and the role that it plays in communities. This new approach has been developed against a background of severe cuts in Government funding and growing pressure on public services.

Local authorities are, of course, large users of power. They provide a range of public services from numerous buildings, depots and other facilities. Hence, their electricity bills are also high and are of growing concern. But it is not just their own inability to meet ever rising energy costs that is of concern: there is an understanding of the impact of such price rises on both the community’s health and wellbeing and the vitality of the local commercial / industrial sector in the area.

There are three parts to the energy sector, namely: generation of power, transmission of power and supply of power to domestic and commercial customers. There is profit embedded in each of these parts.

So the impressive array of public sector assets, in the form of land, buildings and other facilities offers great promise when it comes to generation of renewable energy. Sites for generation are valuable and, for solar PV in particular, land and buildings are key. Even at today’s solar PV prices, self-consumption provides a good return as the average local authority is paying at least 10 pence per kWh for its power. This means that fitting solar PV to the Council’s Town Hall can save thousands of pounds on the authority’s electricity bill.

Most of transmission is undertaken via the DNOs and the high voltage and low voltage transmission networks. However, there may be a way for local authorities to get involved in this by way of private wire arrangements. A number of the clients that APSE Energy is working with have land adjoining large commercial or industrial sites, where the power can be supplied over the fence via private wire and used on site there. Of course this provides valuable income for the authority but, more importantly, it also makes its local industry more competitive (by reducing its electricity costs). This is a classic way of using generation as a tool of economic development and stimulating local growth and therefore jobs.

On the supply side, two local authorities have already established wholly owned local authority Energy Services Supply companies (ESCOs) to supply power directly to the domestic and commercial sectors. I have expressed the view before that the only real way to capture the full social value of electricity is to supply it directly to inhabitants of the area. Even if a local authority does not want to go the time and effort of setting up its own ESCO, it can enter into a white label arrangement with Robin Hood Energy or Bristol Energy, which are companies that share the same values.

So having established that local Councils could be involved in any of these three areas, it is up to them to decide what they want to achieve. This strategic approach is vital to ensure that an authority is not just engaging in an eclectic mix of different projects that do not tie together strategically.

So if the main aim is to have an impact on the public, particularly on what they pay for their electricity and on fuel poverty in the area, the ESCO route would be the main one. This will create an impact on local pricing generally and if Nottingham is anything to go by, all electricity suppliers will reduce their prices. But this option provides benefits primarily for others, rather than the authority itself.

In many authorities, it is income generation that is the main aim. If this is so, then generation of electricity by that authority is the place to start. This will mean an analysis of assets and looking at the feasibility of different potential projects, underpinned by robust financial planning.

If battery technology is added to the mix, even greater profitability can be achieved, by storing the energy generated until peak hours and then discharging it into the grid for premium rates.

If an authority is more keen on helping the local commercial sector, to help create jobs and growth, then supplying local businesses with power would be the priority. There is more than one that this could be achieved, such as generation assets with private wire systems attached, linking them to nearby commercial sites. An alternative would be the ESCO route, with preferential rates for local businesses.

So it is up to each authority to decide what it is going to aim for and provide resources and plans to get there. Each has its merits, but as the paper notes, most authorities have started more modestly, which normally means engaging in some projects to generate their own power. Once an authority has electricity of its own, a whole new world opens up to it. This is an excellent example of how the market is changing – for the better – with both stronger competition and more variety of outcomes on offer.

Stephen Cirell is an independent consultant on the green agenda specialising in local government and the public sector. He is author of A Guide to Solar PV Projects for Local Government and the Public Sector, the second edition of which was published in 2015.